The author of a new study on the effect of increasing the federal minimum wage to $15 says that while the move would boost the incomes of some lower-wage workers, it will increase child care costs by as much as 43 percent in some states.
“It’s actually going to come back and end up hurting the people that these lawmakers are trying to help the most.” Rachel Greszler, a research fellow in economics, budget, and entitlements at the Heritage Foundation conservative think tank, said in an interview with NTD.
“I estimate that you would have to increase their costs by 21 percent on average across the United States. That would translate into an extra $3,728 for a family with two children,” Greszler said.
“But the cost increases would be much higher,” she said. “There are 10 states that would see a 30 percent or more cost increase, and Mississippi alone would have their costs rise by 43 percent, with a couple of states, Iowa and Indiana, experiencing more than $6,000 increase in the cost of childcare for two children.”
The report (pdf) that Greszler authored provides detailed estimates for all states. The lowest impacts are in Washington state (+$1,131), Massachusetts (+$1,608), and Vermont (+$1,269), while the costs for two-child families would rise by over $5,000 per year in Kansas (+$5,636), Louisiana (+$5,487), Oklahoma (+$5,602), Wisconsin (+$5,227), Georgia (+$5,222), and Nevada (+$5,019).
Besides the added child care costs, Greszler said another effect of a federal minimum wage hike is that it would price some people out of the labor market entirely.
“That’s a pretty bleak outlook for them,” she said. “The reality is at $15 per hour, that’s equivalent to $36,000 per year for the employers’ costs. There are a lot of people, especially when they first start out in the labor market, who are unable to produce that much in value, at least not yet. They need some experience and additional education. And what we’re doing here is essentially pricing out certain people from the labor force.”
She cited projections from the Congressional Budget Office, which estimated that 1 million to 3 million people could lose their jobs in the event of a federal minimum wage increase to $15 an hour.
“In the short term, they would be unemployed and looking for work. In the longer term, they would drop out of the labor force, some of them might turn to the Disability Insurance program. Some of them might have to move in with friends [or] family members, because there just wouldn’t be any options out there for them,” she said.
In her report, Greszler said there are better ways than a federal minimum wage mandate to help workers achieve higher incomes without imposing unintended consequences on other people, including increasing educational opportunities and reducing barriers to businesses investing in workers. She also argued for easing regulations on child care providers, and giving parents more flexibility for how existing public child care dollars are spent.
The House Education and Labor Committee on Feb. 10 approved increasing the federal minimum wage to $15 per hour over five years. The measure will be featured in the COVID-19 bill that the House will forward to the Senate for its consideration.
“Yes, it will. We’re very proud of that,” House Speaker Nancy Pelosi (D-Calif.) told reporters when asked if the House bill would include the minimum wage increase; the fate of the proposal remains precarious in the more moderate Senate.
The minimum wage boost faces opposition from Republicans and a wariness by some Democrats who argue it would hurt small businesses, especially during the pandemic.
One Democrat to voice opposition is Sen. Joe Manchin (D-W.V.), who has suggested that a lower, $11 minimum wage would be more appropriate for West Virginia.
Asked in early February whether he’s supportive of a $15 minimum wage, Manchin told The Hill: “No I’m not. I’m supportive of basically having something that’s responsible and reasonable.”
Even Sen. Bernie Sanders (I-Vt.), who has long championed a minimum wage boost, recently backed a Republican amendment blocking the raising of the federal minimum wage during the pandemic in last week’s Senate “vote-a-rama” session, which involved consideration of multiple amendments to President Joe Biden’s $1.9 trillion pandemic relief bill.
“It was never my intention to increase the minimum wage to $15 immediately and during the pandemic,” Sanders said. “My legislation gradually increases the minimum wage to $15 an hour over a five-year period and that is what I believe we have got to do.”
Economists have for years hotly debated the issue of raising the minimum wage, with advocates arguing that raising salaries will boost purchasing power and the added spending will lift the economy, while opponents argue it will hurt businesses and lead to higher unemployment.
Left-leaning economists such as Paul Krugman have claimed, “There’s just no evidence that raising the minimum wage costs jobs, at least when the starting point is as low as it is in modern America,” while other academics have argued on the premise of the competitive market hypothesis that a minimum wage leads to higher joblessness.
While numerous studies have been done over the years in support of both positions, a new working paper from the National Bureau of Economic Research, a nonprofit research organization, reviewed the entire set of published papers that look at the impact of minimum wage hikes on employment in the United States since 1992. In the paper, economists David Neumark and Peter Shirley conclude that the overwhelming majority of papers (79.3 percent) found that minimum wage hikes had a negative impact on employment.
They also found that the negative impact is stronger for less‐educated workers, teenagers, and young adults, and is particularly strong for workers who are directly affected by minimum wage hikes—that is, workers whose wage rates increase automatically as a result of the policies.
Economic arguments for raising the minimum wage as a way to boost spending and lift economic output have also been challenged, with Ryan Bourne of the Cato Institute, a libertarian think tank, concluding that this argument “ignores contractionary impacts from lower profits reducing investment, higher prices reducing other spending, or reduced employment opportunities cutting some people’s incomes.”
“Standard economic theories suggest that, overall, increasing a price floor brings more distortions to the economy,” Bourne added, and pointed to a study that found that “an overwhelming majority of economists (69 percent) disagree (versus 4 percent who agree) with the idea that a $15 minimum wage would substantially boost aggregate economic output.”
The current minimum wage in the United States is $7.25 an hour, where it has remained since 2009. The percentage of people who are paid $7.25 an hour or less is 2.1 percent of all hourly workers, the Bureau of Labor Statistics reported in 2019 (pdf), with the vast majority earning a higher wage.